The Impact Of Immigration On The Global Economy: Goldman Sachs

Immigration has become a hot-button topic all across the globe over the last few years, and is not limited to the United States. Throughout the course of human history, hungry or otherwise desperate people have left their homes to immigrate to other areas where they could make a new and better life for themselves. Unfortunately, in the 21st century, there is often nowhere for desperate people to go as large numbers of immigrants are not welcome in most countries.

The immigration issue has been simmering for decades along the southern border of the United States, and immigration has led to controversy or even violence in in India, Europe and across the Middle East. The ongoing violence in Libya, Syria and Iraq has led to a more pressing immigration crisis in Southern Europe today, as the continent is trying to deal with hundreds of thousands of refugees fleeing the violence in these areas.

The September 2nd edition of Goldman Sachs Fortnightly Thoughts explores the issue of immigration, focusing on recent trends and highlighting possible impacts on macroeconomics and investments.

Immigration is growing

GS analyst Hugo Scott-Gall and colleagues point out that immigrants now account for 3.2% of the global population, a notable increase from 2.8% in 2010. The U.S. is obviously the most sought-after destination. America has four times as many immigrants as Russia, the second-largest immigrant host nation. That said, when looked at relative to native populations, major Middle East nations have seen the most immigration. The GS data also shows that international migrants represent a large and growing share of the population in Switzerland, Australia, Sweden, Spain and the UK.

In terms of country of origin, India is in first place 14 million emigrants dispersed around the world, followed by Mexico with over 13%. Immigrants originating from Mexico represent more than 10% of the nation’s total population, and the vast majority of immigrants moved to the U.S. Scott-Gall et al also elaborate that China, Bangladesh, Pakistan and the Philippines have also experienced notable net outflows over the last 30 or 40 years.

Note that the figures used in this GS report do not include the large influx of immigrants from the Middle East seeking refuge in Europe over the last year or so.

Goldman Sachs identifies seven global immigration trends

Immigrants want a part of the American Dream: The GS report points out that the U.S. has welcomed large numbers of both skilled and unskilled labor, with the former giving it a big advantage in innovation. Related to this, the analysts note that more than 45% of the employees in Silicon Valley are foreign born.

Migration from Southern Europe to Northern Europe: Scott-Gall et al note: “The flow of young and skilled labor from Southern Europe to economies in the North can be problematic for peripheral growth, but good for the cities in the North – London, Berlin, Stockholm etc.”

Brain drain in EM: Of particular interest, China and India have together seen more than 90,000 inventors immigrate over the last 10 years. This will become a serious problem for emerging nations if their educated workforce continues to permanently emigrate.

Immigration flows within the U.S.: The GS analysts explain: “Cities that are home to growth industries and strong educational institutions have thrived vs. those reliant on sunset industries; think Detroit vs. Chicago.”

Immigration flows within China: Scott-Gall and collegues highlight that internal migration was a key driver of investment opportunities in China, with a similar phenomenon likely to unfold in other EMs.

Chinese shopping mania: Although not immigration per se, the GS report also notes the massive growth in Chinese visitors to Japan, South Korea and Thailand. Of note, Chinese visitors currently represent close to 25% of all visitors to Japan.

International remittances: Finally, the analysts argue that remittances are a huge revenue pool that is “ripe for disruption given huge friction costs”, and project that significantly reduced transaction charges on foreign remittances will lead to greater household consumption in a number of EMs.